BLACKROCK GLOBAL ETP LANDSCAPE 2014 YEAR IN REVIEW DECEMBER 2014 The opinions expressed are as of November 30th, 2014 and may change as subsequent conditions vary.
BlackRock Global ETP Landscape 2014 Year in Review BlackRock ETP Research A cross-regional team analyzing global markets to deliver insights on the intersection of investment trends and ETP flows For inquiries, please email ETPresearch@BlackRock.com GLOBAL ETP INDUSTRY AUM GROWS 15% TO OVER $2.7 TRILLION DRIVEN BY RECORD INFLOWS AND INCREASED ADOPTION Global ETP flows of $267.9bn through November surpassed the previous full-year record set in 2012 Increased adoption among institutions, intermediaries and individuals aided unprecedented expansion in the European and US markets Fixed income ETPs set a new record, gathering $78.6bn as appetite for yield and slower than expected global economic growth helped assets swell 22% to $430bn ETPs in Europe gathered $60.8bn, triple the amount last year, as market penetration increased and ECB bond purchases boosted fixed income flows Accelerating US GDP growth propelled US-listed ETP flows to a record $193.5bn as demand for US equities and fixed income proved resilient Themes to watch in 2015 include smart beta, emerging markets and Japan equity, all of which remain compelling following notable contributions to 2014 flows [ 2 ]
Global ETP Highlights Greater adoption drove record industry flows of $267.9bn in 2014, with investors expanding their use of ETPs to express market views. GLOBAL ETP FLOWS 1 The global ETP industry is on track for organic growth of 11%, which exceeds mutual fund growth. ETPs are increasingly utilized as core buy-and-hold investments, precision exposures for strategic asset allocation when market condition shift and liquid financial instruments for tactical positions. Regional market growth was robust, with Europe posting the second best year ever for flows and the US reaching an all-time high. Results in both regions were spurred by record flows into fixed income. Global fixed income ETP flows have reached record territory in 2014 totaling $78.6bn. Cumulative Flows (US$bn) 2011 2012 2013 2014 Fixed income funds have been one of the biggest beneficiaries of increased ETP adoption. Organic growth reached 22%, double the total industry. The prospect for future growth remains bright as penetration of the broader fixed income market is still less than 1%. GLOBAL FIXED INCOME ETP FLOWS 1 Demand for the relative safety of bonds exceeded expectations amid anxiety over economic growth in the US, Europe, Japan and China. Safe haven categories such as Treasuries, broad US fixed income and investment grade corporate debt fared the best despite low interest rates. Additionally, demand for income translated into healthy inflows for high yield corporate bonds, municipals and emerging markets debt. Fixed income ETP assets have now surpassed $400bn, including $100bn for funds in Europe and nearly $300bn for funds in the US. Assets have more than doubled since 2010 and quadrupled since 2008. Cumulative Flows (US$bn) 2011 2012 2013 2014 ETPs in Europe gathered $60.8bn, three times higher than last year and second only to the 2008 record of $69.5bn. Organic growth increased to 15%. ETP adoption has accelerated following three years of low growth as the European economy struggled in the wake of the financial crisis. The market is maturing rapidly as competition picks up, financial advisors transition to fee-based models and efforts to improve the trading of ETPs across regional exchanges get underway. Also, local UCITS funds are gaining traction globally, particularly with investors in Asia and Latin America. Fixed income was the greatest contributor to flows with $25.5bn, led by $10bn from investment grade corporate debt. EUROPE-LISTED ETP FLOWS 1 2014 YTD Flows: $60.8bn vs. 2013 Flows: $19.4bn Annual flows (US$bn) 80 60 40 20 0 Equity Fixed income Commodities and others (20) 2010 2011 2012 2013 YTD 2014 [ 3 ]
Global ETP Highlights Demand for the category has been bolstered by the expansion of the ECB s bond purchase program as Europe s growth outlook has softened. European equity momentum had carried over from 2013 to the first half of this year, but flows faded as expectations for Europe s economy deteriorated and deflation concerns emerged. US-LISTED ETP FLOWS 1 2014 YTD Flows: $193.5bn vs. 2013 Flows: $190.2bn 200 Funds with US equity exposure picked up in response, accumulating $19.2bn versus $7.9bn last year as European investors have looked to diversify abroad. The US ETP industry gathered $193.5bn to top the high mark of $190.2bn set just last year. Annual Flows (US$bn) 150 100 50 Flows have rallied significantly following a slow start impacted by a stock market selloff in late January / early February. US large cap and broad market equity exposures have proven to be resilient compared to the previous two years. 0 2010 2011 2012 2013 YTD 2014 GDP growth and the labor market have improved, alleviating concerns over the end of quantitative easing by the Federal Reserve Bank. Stubbornly low interest rates intensified the search for yield. Income-oriented flows exceeded $25bn, including fixed income (high yield corporate, emerging markets and municipal debt) and equities (high dividend, preferred stock and real estate). Themes to watch in 2015 include smart beta, emerging markets and Japan equities, all of which remain compelling. Assets for smart beta equity have quadrupled since 2008. Investor appetite for tailored exposures not available via traditional market cap-weighted funds has accelerated in the past two years. Flows remained robust in 2014 after surging in 2013. Organic growth for smart beta is 18%, twice that of market-cap weighted equity ETPs. The biggest contributors to this growth have been dividendfocused and minimum volatility funds. The former have gathered over $10bn this year and remain attractive as bond alternatives for investors seeking income in the current lowyield environment. The latter have seen moderate flows this year amid historically low volatility in equity markets for most of this year. However, volatility has recently increased and is expected to normalize further in 2015. Minimum volatility ETPs have regained momentum as a result. The proliferation of factor funds is also a key development in the ongoing growth of smart beta. SMART BETA EQUITY ETP FLOWS 2011 2012 2013 2014 51.1 [ 4 ]
Global ETP Highlights Improved sentiment for emerging markets equity led to inflows of $4.3bn after redemptions reached ($10.3bn) in 2013. Valuations and economic growth levels remain attractive relative to developed markets. Investors had maintained an underweight stance to the category last year and through the first quarter of 2014, with redemptions over this stretch totaling $25.4bn. All of this money returned during the second and third quarters alone. While selectivity is important as conditions in individual countries vary, appealing opportunities remain. Prospects for countries in Asia such as China and India are the most favorable, on valuation grounds as well as due to policies supportive of growth. These countries also have lower vulnerability to foreign capital flowing out in a rising interest rate environment. GLOBAL EMERGING MARKETS EQUITY ETP FLOWS Cumulative Flows (US$bn) 20 10 0 (10) 2013 2014 4.3 (10.3) Flows into Japanese equity have reached $13.4bn. Stillattractive valuations and aggressive government stimulus makes this an important investment theme for 2015. (20) J F M A M J J A S O N D Momentum accelerated in November, with flows of $4.1bn for US- and Europe-listed ETPs on news of expanded monetary easing and a doubling of the domestic equity allocation for the government pension fund. GLOBAL ETP 5-YEAR ASSET FORECAST 6,000 5,976 We are forecasting global ETP assets to double to $6 trillion over the next five years. The secular trends of increased ETP adoption and market expansion contributed to record flows in 2014 and will be the driving forces behind future growth. The industry will continue to evolve to encompass new users and new uses. This will include, among others, an expanding retail segment in Europe and greater utilization of fixed income ETPs by banks and insurance companies. The breadth of strategies and exposures offered by ETPs, as well as more extensive cross-border investment brought by the globalization of the industry, should enable further market penetration. Regardless of the investment climate, ETPs are increasingly becoming viable alternatives to individual stocks and bonds, derivatives and mutual funds. 5,000 4,000 3,000 2,000 1,000 0 (1,000) 1,156 2,752 2009 2014 2019F [ 5 ]
Endnotes The ETP (or exchange traded product) category encompasses any portfolio exposure security that trades intra-day on an exchange. The data for this report are captured from a number of sources by BlackRock including provider websites, fund prospectuses, provider press releases, provider surveys, Bloomberg, the National Stock Exchange, Strategic Insight Simfund, Wind, and the Bank of Israel. All amounts are reported in US dollars. Flows are derived using daily net asset values and shares outstanding using the most recent data we can capture at month-end. For products with cross-listings, we attribute net flows and assets to the primary listings. For Middle East and Africa, net flows data is not available. Assets are derived using shares outstanding and prices at the end of each month (or the closest date available). Where price is not available, we use an approximation. For ETPs listed in Israel, product level detail is not available. Product level information is aggregated by provider, asset class, exposure, region listed and replication method to produce the various analyses in the report. 1. Data is as of November 27, 2014 for Europe and November 28, 2014 for the US, Canada, Latin America, Israel, and some Asia ETPs. Some Asia ETP data is as of October 31, 2014. Global ETP flows and assets are sourced using shares outstanding and net asset values from Bloomberg for the US, Canada, Europe, Latin America and some ETPs in Asia. Middle East ETP assets are sourced from the Bank of Israel. ETP flows and assets in China are sourced from Wind. Inflows for years prior to 2010 are sourced from Strategic Insights Simfund. Asset classifications are assigned by the BlackRock based on product definitions from provider websites and product prospectuses. Other static product information is obtained from provider websites, product prospectuses, provider press releases, and provider surveys. Market returns are sourced from Bloomberg. 2. We classify maturity buckets of a Fixed Income ETP if the fund invests at least 70% of its assets in the corresponding maturity/exposure range: Short maturity includes: underlying security maturities < 3 years and floating rate where the fund holds floating rate securities and/or bank loans. Intermediate includes: 3 years < underlying security maturities < 10 years. The other category includes Long-Term: underlying security maturities > 10 years; Broad Maturities: The fund invests in more than two maturity buckets without emphasizing one; Selected Maturities: The fund holds securities with multiple selected range of maturity buckets, i.e. barbell strategy which focuses on the specific short-term and long-term buckets with even weights; and Fixed Maturity: The fund itself has a target maturity date and arranged holdings correspondingly. Index returns are for illustrative purposes only. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results. ABOUT BLACKROCK BlackRock is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. At September 30, 2014, BlackRock s AUM was $4.525 trillion. BlackRock helps clients meet their goals and overcome challenges with a range of products that include separate accounts, mutual funds, ishares (exchange traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions. Headquartered in New York City, as of September 30, 2014, the firm had approximately 12,100 employees in more than 30 countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia and the Middle East and Africa. [ 6 ]
Disclaimer NOTICE TO RESIDENTS IN THE UK: BlackRock Advisors (UK) Limited is authorised and regulated by the Financial Conduct Authority ('FCA'), having its registered office at 12 Throgmorton Avenue, London, EC2N 2DL, England, Tel +44 (0)20 7743 3000. This document has been provided by BlackRock in a private and confidential manner to professional and or institutional investors (as such term is defined according to applicable regulations in the relevant jurisdiction) only upon express request. This document is solely for informational and educational purposes only and represents an assessment of the market environment at a specific time and is not intended to be relied upon by the reader as research, a forecast of future events or a guarantee of future results. This publication does not provide financial, investment or tax advice or information relating to the securities of any particular fund or other issuer. The information and opinions included in this publication are based on publicly available information, are subject to change and should not be relied upon for any purpose other than general information and education. This publication has been prepared without regard to the individual financial circumstances and objectives of those who receive it and the types of securities discussed in this publication may not be suitable for all investors. The information included in this document has been taken from trade and other sources considered to be reliable. This document is published in good faith but no representation or warranty, express or implied, is made by BlackRock or by any person as to its accuracy or completeness and it should not be relied on as such. BlackRock or any of its directors, officers, employees or agents shall have no liability for any loss or damage arising out of the use or reliance on the material provided including without limitation, any loss of profit or any other damage, direct or consequential. Any opinions expressed in this document reflect our analysis at this date and are subject to change. This is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy in any jurisdiction. This document has not been prepared, reviewed or distributed by any broker-dealer affiliate of BlackRock and should not be deemed a product of any such affiliate. BlackRock has not performed any due diligence on products which are not managed by BlackRock and accordingly does not make any remark on their suitability for investment purposes. Past performance is not a guide to future performance. Income is not fixed and may fluctuate. Exposure to foreign currencies can be affected by exchange rate movements. This document or any portion hereof may not be reprinted, sold or redistributed without authorisation from BlackRock Advisors (UK) or its affiliates (together, BlackRock ). TO RESIDENTS IN THE UNITED STATES: This publication has not been prepared, reviewed or distributed by any broker-dealer affiliate of BlackRock and should not be deemed a product of any such affiliate. This publication does not provide financial, investment or tax advice or information relating to the securities of any particular fund or other issuer. The information and opinions included in this publication are based on publicly available information, are subject to change and should not be relied upon for any purpose other than general information and education. This publication has been prepared without regard to the individual financial circumstances and objectives of those who receive it and the types of securities discussed in this publication may not be suitable for all investors. The information included in this document has been taken from trade and other sources considered to be reliable. This document is published in good faith but no representation or warranty, express or implied is made by BlackRock or by any person as to its accuracy or completeness and it should bot be relied on as such. BlackRock or any of its directors, officers, employees or agents shall have no liability for any loss or damage arising out of the use or reliance on the material provided including without limitation, any loss of profit or any other damage, direct or consequential. Any opinions expressed in this document reflect our analysis at this date and are subject to change. This is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any strategy in any jurisdiction. [ 7 ]
Disclaimer (continued) NOTICE TO RESIDENTS IN AUSTRALIA: Issued in Australia by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFSL 230523 ("BlackRock Australia") to institutional investors only. ishares exchange traded funds ( ETFs ) that are made available in Australia are issued by BlackRock Australia, ishares, Inc. ARBN 125 632 279 and ishares Trust ARBN 125 632 411. BlackRock Australia is the local agent and intermediary for ishares ETFs that are issued by ishares, Inc. and ishares Trust. BlackRock Australia is a wholly-owned subsidiary of BlackRock, Inc. (collectively BlackRock ). A Product Disclosure Statement ( PDS ) or prospectus for each ishares ETF that is offered in Australia is available at ishares.com.au. You should read the PDS or prospectus and consider whether an ishares ETF is appropriate for you before deciding to invest. ishares securities trade on ASX at market price (not, net asset value ("NAV")). ishares securities may only be redeemed directly by persons called Authorised Participants. This information is general in nature, and has been prepared without taking into account any individual's objectives, financial situation, or needs. You should seek independent professional legal, financial, taxation, and/or other professional advice before making an investment decision regarding the ishares funds. FOR INVESTORS IN CANADA: The information and opinions herein are provided for informational purposes only, are subject to change and should not be relied upon as the basis for investment decisions. Past performance is not necessarily indicative of future performance. This document is not and should not be construed as a solicitation or offering of units of any funds or other security in any jurisdiction. No part of this publication may be reproduced in any manner without prior written permission of BlackRock Asset Management Canada Limited and/or its affiliates. FOR INVESTORS IN HONG KONG: Some of the funds mentioned herein have not been registered with the Securities and Futures Commission for offering or distribution in Hong Kong. Accordingly, this material may not be circulated or distributed, nor may the funds be offered or sold whether directly or indirectly, to any person in Hong Kong other than to a Professional Investor as defined in the Securities and Futures Ordinance ("SFO") (Cap. 571 of the laws of Hong Kong) and any regulations there under. NOTICE TO RESIDENTS IN INDIA: This document is intended for information purposes only and does not constitute investment advice or an offer to sell or solicitation of an offer to buy the funds described herein. This document has been provided by BlackRock in a private and confidential manner to financial intermediaries only upon their request. The funds mentioned herein have not been registered with any authorities in India. NOTICE TO RESIDENTS IN JAPAN: This document is solely for educational purposes and does not constitute advertisement of financial services targeted at investors in Japan. This document is intended for information purposes only and does not constitute investment advice or an offer to sell or solicitation of an offer to buy the funds described herein. This document has been provided by BlackRock in a private and confidential manner to Qualified Institutional Investors (as defined in the Financial Instruments and Exchange Law of Japan) only upon their request. [ 8 ]
Disclaimer (continued) FOR INSTITUTIONAL AND PROFESSIONAL INVESTORS ONLY IN LATIN AMERICA: In Latin America, for Institutional and Professional Investors only. This material is solely for educational purposes only and does not constitute an offer or a solicitation to sell or a solicitation of an offer to buy any shares of any securities (nor shall any such securities be offered or sold to any person) in any jurisdiction within Latin America in which an offer, solicitation, purchase or sale would be unlawful under the securities law of that jurisdiction. It is possible that all or some of the funds mentioned or inferred to in this material have not been registered with the securities regulator of Brazil, Chile, Colombia, Mexico and Peru or any other securities regulator in any Latin American country, and thus, might not be publicly offered, purchased or sold within any such country. The securities regulators of such countries have not confirmed the accuracy of any information contained herein. No information discussed herein can be provided to the general public in Latin America. NOTICE TO RESIDENTS IN SINGAPORE: This document is provided by BlackRock (Singapore) Limited (company registration number: 200010143N) for use with institutional investors only. This document has not been registered as a prospectus with the Monetary Authority of Singapore (MAS). Some of the funds mentioned herein have not been registered with the MAS for distribution in Singapore. Accordingly, this and any other document or material in connection with the offer or sale of the Shares may not be circulated or distributed, nor may the Shares be offered or sold, whether directly or indirectly, to any person in Singapore other than (i) to an institutional investor pursuant to Section 304 of the Securities and Futures Act (SFA) or (ii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. First sales of the Shares acquired pursuant to Section 304 of the SFA are subject to the requirements under Section 304A of the SFA. NOTICE TO RESIDENTS IN SOUTH AFRICA: BlackRock Investment Management (UK) Limited is registered with the South African Financial Services Board, FSP No. 43288. NOTICE TO RESIDENTS IN THAILAND: This document is intended for information purposes only and does not constitute investment advice or an offer to sell or solicitation of an offer to buy the funds described herein. This document has been provided by BlackRock in a private and confidential manner to institutional investors only upon their request. The funds mentioned herein have not been registered with any authorities in Thailand, and accordingly, this document may not be circulated or distributed, nor may the shares of these funds be offered or sold whether directly or indirectly, to any person in Thailand. NOTICE TO RESIDENTS IN VIETNAM: This document is intended for information purposes only and does not constitute investment advice or an offer to sell or solicitation of an offer to buy the funds described herein. This document has been provided by BlackRock in a private and confidential manner to institutional investors only upon their request. The funds mentioned herein have not been registered with any authorities in Vietnam, and accordingly, this document may not be circulated or distributed, nor may the shares of these funds be offered or sold whether directly or indirectly, to any person in Vietnam. 2014 BlackRock Advisors (UK) Limited. All rights reserved. Registered Company No. 00796793. All rights reserved. Calls may be monitored or recorded. BLACKROCK, BLACKROCK SOLUTIONS, and ishares, are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other marks are those of their respective owners. is-14141-1214